The Homa Files

In early November, we posted:

Post-election: Government revenues will soar in Q4 … guaranteed.

The logic was simple: with higher tax rates on capital gains and dividends a virtual certainty, investors would sell appreciated securities (and companies)  to lock-in the 15% tax rate … and, companies would accelerate 2013 dividend payouts into the 2012 tax year.

Sure enough.

See Told you so: “Tax induced selling” for some reports of stock & company sell-offs.

Now, I wonder: was it all a big con to generate some tax revenues?

What if tax rates on capital gains and dividends don’t go up?

Well, here are a couple of situations.

• Some owners may have sold their companies pre-maturely … think, George Lucas selling to Disney.
• Some investors may have sold stock that they intended to hold onto … maybe even bought the stock back with their tax-depleted proceeds.
• Some companies may have shifted their planned cash flows to “help” their investors.

Under all scenarios, government tax revenues went up.

Except for early dividend payouts – which simply move some cash flows around – investors may have been induced to take actions that they didn’t really want to take … at least this early in their games.

But, they did … and the Fed coffers benefit whether the tax rates go up or not.

Clever play … win-win for the the government.

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This entry was posted on December 19, 2012 at 6:58 am and is filed under Taxes. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.